What is blockchain and how can it be used in the fashion industry?

James Corlett, Partner at Beyond Corporate Law

James Corlett, Partner at Beyond Corporate Law and Molly Hackett, Paralegals at Beyond

Company Law

Blockchain is a new kind of technology that is now ubiquitous thanks in part to cryptocurrencies like BitCoin and the increasingly common news around NFTs (non-fungible tokens).

Blockchain is a database and means of sharing information across many different computers, not in one centralized place. This means that it provides a greater level of security than a typical decentralized database or communication chain. Cryptography authenticates the identity of the party and creates an immutable hash of each ledger record, the current page of records, and the binding that links each block to the previous one in the database.

The use of Blockchain in digital sourcing has emerged to help fashion brands fight the threat of counterfeiting, to demonstrate their sustainable and ethical credentials, and to enable brands to differentiate in a competitive marketplace through marketing and brand development.

It was reported earlier this year that the UK Fashion and Textile Association has partnered with IBM and retailers including H&M, COS, Next and New Look to pioneer supply chain traceability solutions for the UK fashion industry. The platform will use IBM’s blockchain technology to share information about apparel products (place and date of production, product composition and environmental related certificates) and can be accessed by consumers via QR codes.

Proof of manufacture and counterfeit handling

Blockchain is currently being used in the fashion and retail sectors to track the movement of physical and digital goods to ensure their authenticity. In physical supply chains, blockchain can be used to verify physical tags on clothing. Usually this is possible through QR codes, short range communication (NFC) chips and radio frequency identification chips (RFID chips), which are accessible on mobile phones and payment methods such as ApplePay.

While over the years holograms and QR codes have been used, they have been copied extensively. However, through the use of blockchain technology, it is easier to identify counterfeit goods because they will automatically check a centralized database, providing a more complete picture of the authenticity of the clothes.

An added benefit of this is that the blockchain can link directly to anti-counterfeiting organizations such as brand protection teams or law enforcement agencies. From a consumer point of view, you could theoretically use technology to protect purchases made through online selling platforms, such as eBay, reducing the risk of counterfeit products, especially luxury goods or limited luxury goods.

This technology does the trick in helping identify any counterfeiters in the supply chain, and if copying or counterfeiting has occurred, a brand can use blockchain as “paper trail” evidence to distinguish their goods and their origin from counterfeits to protect them. reputation.

Supply chain monitoring

Blockchain connects clothing supply chains with real-time data streams, creating an immutable ledger. The way blockchain tracks a product enables transparency in seeing the individuals working on the product reach the highway and into the hands of consumers. The main advantage of tracking is that brands can monitor product volume, whether any products are missing and at what stage of the chain this is happening. This can be attributed to a distributor selling some of the goods elsewhere and further violating the distribution agreement. By having access to that data, brands and retailers will be able to streamline their supply chains and increase their efficiency.

In addition, new technology makes it easier to read exactly what ingredients are included in a product which in turn can be used for recycling purposes, and can provide important insights to brands such as whether the product is being resold online or ends up in a secondhand or charity store.

Sustainability and social impact

The life cycle of just one garment creates a significant environmental and social footprint – it includes material sourcing, production, shipping, retail and marketing. Such a wide life cycle has made the environmental quality of a product unobservable to both fashion retailers and consumers. Blockchain technology addresses this issue through its tracking mechanisms and its ability to provide retailers with ethical credentials.

Fashion retailers who are able to demonstrate sustainability, environmental accountability and the actions they are taking to help the planet have become increasingly important over the past decade. Consumers want to know where the goods they buy come from, especially in an industry that has received widespread criticism for unsafe work spaces, low wages and labor abuse. Brands like: H&M has responded to this changing consumer behavior by releasing sustainable collections. H&MIts innovative collection, “Conscious Exclusive” has reached its peak to showcase a line of sustainable brands where all the products contain sustainable ingredients. Consumers can identify these products by the attached green label indicating at least 50% of the sustainable raw material or 20% of the recycled cotton has been used in garment production.

While the innovation is a move to make the retail sector more sustainable, consumers may be skeptical of the ad and may question its validity, right? is it right what was said? Blockchain technology promotes transparency in the industry and gives retailers the confidence to market products as sustainable products and reassure customers of the origin of their goods. In a similar way to supply chain monitoring, greater traceability via blockchain can reduce the risk of cloudy and inefficient supply chains and allow retailers to identify suppliers who do not support sustainable and ethical practices.

With increased confidence in the origin and composition of their products, brands can also use this information to further develop their brand image in this area, improve communication around their support of ethical practices and build consumer-facing narratives that demonstrate their sustainability. This in turn will enhance their reputation.

Verify trademark

Brand and trademark protection is starting to see the benefits of blockchain technology by reducing counterfeit goods and increasing trademark registration efficiency. Blockchain can offer a level of convenience in terms of authenticity of luxury brand trademark owners. Counterfeiting can be handled via a QR code. When consumers purchase a product, they can use a QR code to access its certificate online which has been cryptographically signed by the brand, as well as all those involved throughout the supply chain, verifying the authenticity of the product. Therefore, counterfeits can be easily identified by the lack of verification via blockchain. In addition, the purchase of clothing, and the resale of luxury goods will be complemented by the assurance that the goods they buy are legitimate, and provide that convenience to their customers.

Brand users must be able to demonstrate actual use of the brand – be it as evidence in the application process or to demonstrate its distinctiveness. By recording information such as date of use and frequency of use on the blockchain, a brand can easily show its original usage per region, can be recorded with UKIPO (as well as other relevant trademark offices) and available for everyone to view. Also, having the ability to check registered trademarks for any possible confusion would be more efficient and reliable.

Smart contract

A smart contract is a self-executing agreement, such as a trademark license agreement, written in computer code and signed by the parties using a cryptographic signature. It can be verified and applied automatically under predefined event-driven conditions. Because it’s self-running, it doesn’t require the involvement of a third party or external oversight.

Smart contracts can automatically monitor and calculate each time a royalty payment is due according to the terms of the contract and automatically make payments to the trademark owner’s predefined wallet. Hence, it provides a stress-free and easy-to-implement trademark license agreement.

Blockchain stored contracts can help build stronger relationships between retailers and suppliers through real-time communication and increase visibility into the supply chain.

The future of blockchain and its challenges

While blockchain will bring several benefits in making the fashion industry more sustainable and transparent, adding chips to all products is not the most sustainable practice, and recording all ledgers in a secure environment will require extensive data storage, therefore energy usage will be lower. efficient. tall. There are also practical issues to consider such as QR codes on clothes that are washed regularly which are becoming increasingly obsolete, a feature like this is probably best suited for handbags and other similar products.

Blockchain monitoring and regulation will be critical for the technology to be effective. While the blockchain will allow retailers to ensure any information is not altered, it lacks the capacity to check the integrity and validity of the information that was recorded in the first place. This means that if one of the parties along the supply chain enters false information, it will remain in the digital file.

Only a small group of businesses have adopted the technology, so it is not yet a standard approach. In implementing blockchain technology, fashion retailers may have to increase the prices of their products, or alternatively reduce the prices for the actual chips as they currently add a significant amount to the cost of the goods – therefore for goods of lesser value, brands may be reluctant to adopt chip technology.